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Understanding e

  1. 1. The WTO Fifth edition Previously published as “Trading into the Future”Location: Geneva, Switzerland Written and published by the World Trade OrganizationEstablished: 1 January 1995 Information and External Relations DivisionCreated by: Uruguay Round negotiations (1986–94) © 2011 WTOMembership: 153 countries (since 23 July 2008) An up-to-date version of this text also appears on the WTO websiteBudget: 196 million Swiss francs for 2011 (http://www.wto.org, click on “the WTO”), where it isSecretariat staff: 640 regularly updated to reflect developments in the WTO.Head: Pascal Lamy (Director-General) Contact the WTO Information Division rue de Lausanne 154, CH–1211 Genève 21, Switzerland Tel: (41–22) 739 5007/5190 • Fax: (41–22) 739 54 58Functions: e-mail: enquiries@wto.org• Administering WTO trade agreements Contact WTO Publications• Forum for trade negotiations rue de Lausanne 154, CH–1211 Genève 21, Switzerland• Handling trade disputes Tel: (41–22) 739 5208/5308 • Fax: (41–22) 739 5792• Monitoring national trade policies e-mail: publications@wto.org• Technical assistance and training for developing countries July 2011• Cooperation with other international organizations ISBN: 978-92-870-3748-0
  2. 2. Understanding the WTO
  3. 3. ABBREVIATIONSSome of the abbreviations and acronyms used in the WTO: ITO International Trade Organization MEA Multilateral environmental agreementACP African, Caribbean and Pacific Group MERCOSUR Southern Common Market (Lomé Convention and Cotonu Agreement) MFA Multifibre Arrangement (replaced by ATC)AD, A-D Anti-dumping measures MFN Most-favoured-nationAFTA ASEAN Free Trade Area MTN Multilateral trade negotiationsAMS Aggregate measurement of support NAFTA North American Free Trade Agreement (agriculture) PSE Producer subsidy equivalent (agriculture)APEC Asia-Pacific Economic Cooperation PSI Pre-shipment inspectionASEAN Association of Southeast Asian Nations S&D, SDT Special and differential treatmentATC Agreement on Textiles and Clothing (for developing countries)CBD Convention on Biological Diversity SAARC South Asian Association for RegionalCCC (former) Customs Co-operation Council Cooperation (now WCO) SDR Special Drawing Rights (IMF)CER [Australia New Zealand] Closer Economic SELA Latin American Economic System Relations [Trade Agreement] (also ANCERTA) SPS Sanitary and phytosanitary measuresCOMESA Common Market for Eastern and TBT Technical barriers to trade Southern Africa TMB Textiles Monitoring BodyCTD Committee on Trade and Development TNC Trade Negotiations CommitteeCTE Committee on Trade and Environment TPRB Trade Policy Review BodyCVD Countervailing duty (subsidies) TPRM Trade Policy Review MechanismDDA Doha Development Agenda TRIMs Trade-related investment measuresDSB Dispute Settlement Body TRIPS Trade-related aspects of intellectualDSU Dispute Settlement Understanding property rightsEFTA European Free Trade Association UN United NationsEU European UnionFAO Food and Agriculture Organization UNCTAD UN Conference on Trade and DevelopmentGATS General Agreement on Trade in Services UNDP UN Development ProgrammeGATT General Agreement on Tariffs and Trade UNEP UN Environment ProgrammeGSP Generalized System of Preferences UPOV International Union for the ProtectionHS Harmonized Commodity Description of New Varieties of Plants and Coding System UR Uruguay RoundICITO Interim Commission for the VER Voluntary export restraint International Trade Organization VRA Voluntary restraint agreementILO International Labour Organization WCO World Customs OrganizationIMF International Monetary Fund WIPO World Intellectual Property OrganizationITC International Trade Centre WTO World Trade OrganizationFor a comprehensive list of abbreviations and glossary of terms used in international trade, see, for example:Walter Goode, Dictionary of Trade Policy Terms, 5th edition, WTO/Cambridge University Press, 2007.This and many other publications on the WTO and trade are available from:WTO Publications, World Trade Organization, Centre William Rappard, Rue de Lausanne 154, CH–1211 Geneva, Switzerland.Tel (+41–22) 739 5208/5308. Fax: (+41–22) 739 5792. E-mail: publications@wto.org 2
  4. 4. ON THE WEBSITE In addition, some simplifications are used in order to keep the text simple and clear.You can find more information on WTOactivities and issues on the WTO website. In particular, the words “country” and “nation” are frequentlyThe site is created around “gateways” leading to various sub- used to describe WTO members, whereas a few members arejects — for example, the “trade topics” gateway or the “Doha officially “customs territories”, and not necessarily countriesDevelopment Agenda” gateway. Each gateway provides links in the usual sense of the word (see list of members). Theto all material on its subject. same applies when participants in trade negotiations are called “countries” or “nations”.References in this text show you where to find the material.This is in the form of a path through gateways, starting with Where there is little risk of misunderstanding, the wordone of the navigation links in the top right of the homepage “member” is dropped from “member countries (nations, gov-or any other page on the site. For example, to find material on ernments)”, for example in the descriptions of the WTOthe agriculture negotiations, you go through this series of agreements. Naturally, the agreements and commitments dogateways and links: not apply to non-members.www.wto.org > trade topics > goods > agriculture In some parts of the text, GATT is described as an “interna-> agriculture negotiations tional organization”. The phrase reflects GATT’s de facto role before the WTO was created, and it is used simplistically hereYou can follow this path, either by clicking directly on the to help readers understand that role. As the text points out,links, or via drop-down menus that will appear in most this role was always ad hoc, without a proper legal foundation.browsers when you place your cursor over the “trade topics” International law did not recognize GATT as an organization.link at the top of any web page on the site. For simplicity, the text uses the term “GATT members”.A word of caution: the fine print Officially, since GATT was a treaty and not a legally-established organization, GATT signatories were “contracting parties”.While every effort has been made to ensure the accuracy ofthe text in this booklet, it cannot be taken as an official legal And, for easier reading, article numbers in GATT and GATS haveinterpretation of the agreements. been translated from Roman numbers into European digits. 3
  5. 5. CONTENTSCHAPTER 1 BASICS CHAPTER 3 SETTLING DISPUTES1. What is the World Trade Organization? 9 1. A unique contribution 552. Principles of the trading system 10 2. The panel process 593. The case for open trade 13 3. Case study: the timetable in practice 604. The GATT years: from Havana to Marrakesh 15 CHAPTER 4 CROSS-CUTTING AND NEW ISSUES5. The Uruguay Round 18 1. Regionalism: friends or rivals? 63CHAPTER 2 THE AGREEMENTS 2. The environment: a specific concern 651. Overview: a navigational guide 23 3. Investment, competition, procurement, simpler procedures 722. Tariffs: more bindings and closer to zero 25 4. Electronic commerce 743. Agriculture: fairer markets for farmers 26 5. Labour standards: highly controversial 744. Standards and safety 305. Textiles: back in the mainstream 316. Services: rules for growth and investment 337. Intellectual property: protection and enforcement 398. Anti-dumping, subsidies, safeguards: contingencies, etc 449. Non-tariff barriers: red tape, etc 49 Import licensing: keeping procedures clear 49 Rules for the valuation of goods at customs 49 Preshipment inspection: a further check on imports 50 Rules of origin: made in ... where? 50 Investment measures: reducing trade distortions 5110. Plurilaterals: of minority interest 5111. Trade policy reviews: ensuring transparency 53 4
  6. 6. CHAPTER 5 THE DOHA AGENDA CHAPTER 6 DEVELOPING COUNTRIESImplementation-related issues and concerns (par 12) 77 1. Overview 93Agriculture (pars 13, 14) 80 2. Committees 95Services (par 15) 81Market access for non-agricultural products (par 16) 81 3. WTO technical cooperation 96Trade-related aspects of intellectual property rights(TRIPS) (pars 17–19) 82 4. Some issues raised 97Relationship between trade and investment (pars 20–22) 84 CHAPTER 7 THE ORGANIZATIONInteraction between trade and competition policy (pars 23–25) 84Transparency in government procurement (par 26) 85 1. Whose WTO is it anyway? 101Trade facilitation (par 27) 85 2. Membership, alliances and bureaucracy 105WTO rules: anti-dumping and subsidies (par 28) 86WTO rules: regional trade agreements (par 29) 86 3. The Secretariat 108Dispute Settlement Understanding (par 30) 87Trade and environment (pars 31–33) 87 4. Special policies 109Electronic commerce (par 34) 89 Current WTO members 112Small economies (par 35) 89Trade, debt and finance (par 36) 89Trade and technology transfer (par 37) 89Technical cooperation and capacity building (pars 38–41) 89Least-developed countries (pars 42, 43) 90Special and differential treatment (par 44) 91Cancún 2003, Hong Kong 2005 91 5
  7. 7. The first step is to talk. Essentially,the WTO is a place where membergovernments go, to try to sort out thetrade problems they face with eachother.At its heart are WTO agreements,negotiated and signed by the bulkof the world’s trading nations.But the WTO is not just aboutliberalizing trade, and in somecircumstances its rules supportmaintaining trade barriers —for example to protect consumers,prevent the spread of diseaseor protect the environment. 7
  8. 8. The first step is to talk. Essentially,the WTO is a place where membergovernments go, to try to sort out thetrade problems they face with eachother.At its heart are WTO agreements,negotiated and signed by the bulkof the world’s trading nations.But the WTO is not just aboutliberalizing trade, and in somecircumstances its rules supportmaintaining trade barriers —for example to protect consumers,prevent the spread of diseaseor protect the environment. 7
  9. 9. The “table” in action: WTO Trade Negotiations Committee, meeting in Geneva, 14 September 2005
  10. 10. Chapter 1 BASICSThe WTO was born out of negotiations;everything the WTO does is the result of negotiations1. What is the World Trade Organization?Simply put: the World Trade Organization (WTO) deals with the rules of tradebetween nations at a global or near-global level. But there is more to it than that.Is it a bird, is it a plane?There are a number of ways of looking at the WTO. It’s an organization for liberal- ... OR IS IT A TABLE?izing trade. It’s a forum for governments to negotiate trade agreements. It’s a placefor them to settle trade disputes. It operates a system of trade rules. (But it’s not Participants in a recent radio discussionSuperman, just in case anyone thought it could solve — or cause — all the world’s on the WTO were full of ideas. The WTOproblems!) should do this, the WTO should do that, they said.Above all, it’s a negotiating forum … Essentially, the WTO is a place where membergovernments go, to try to sort out the trade problems they face with each other. The first One of them finally interjected: “Wait astep is to talk. The WTO was born out of negotiations, and everything the WTO does minute. The WTO is a table. People sitis the result of negotiations. The bulk of the WTO’s current work comes from the round the table and negotiate. What do1986–94 negotiations called the Uruguay Round and earlier negotiations under the you expect the table to do?”General Agreement on Tariffs and Trade (GATT). The WTO is currently the host tonew negotiations, under the “Doha Development Agenda” launched in 2001.Where countries have faced trade barriers and wanted them lowered, the negotia-tions have helped to liberalize trade. But the WTO is not just about liberalizingtrade, and in some circumstances its rules support maintaining trade barriers — forexample to protect consumers or prevent the spread of disease.It’s a set of rules … At its heart are the WTO agreements, negotiated and signedby the bulk of the world’s trading nations. These documents provide the legalground-rules for international commerce. They are essentially contracts, bindinggovernments to keep their trade policies within agreed limits. Although negotiatedand signed by governments, the goal is to help producers of goods and services,exporters, and importers conduct their business, while allowing governments tomeet social and environmental objectives.
  11. 11. The system’s overriding purpose is to help trade flow as freely as possible — so long ‘Multilateral’ trading system ... as there are no undesirable side-effects — because this is important for economic ... i.e. the system operated by the WTO. development and well-being. That partly means removing obstacles. It also means Most nations — including almost all the ensuring that individuals, companies and governments know what the trade rules are main trading nations — are members of the system. But some are not, so “multi- around the world, and giving them the confidence that there will be no sudden lateral” is used to describe the system changes of policy. In other words, the rules have to be “transparent” and predictable. instead of “global” or “world”. And it helps to settle disputes … This is a third important side to the WTO’s work. In WTO affairs, “multilateral” also con- Trade relations often involve conflicting interests. Agreements, including those trasts with actions taken regionally or by painstakingly negotiated in the WTO system, often need interpreting. The most har- other smaller groups of countries. (This is different from the word’s use in other monious way to settle these differences is through some neutral procedure based on areas of international relations where, for an agreed legal foundation. That is the purpose behind the dispute settlement example, a “multilateral” security process written into the WTO agreements. arrangement can be regional.) Born in 1995, but not so young The WTO began life on 1 January 1995, but its trading system is half a century older. Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system. (The second WTO ministerial meeting, held in Geneva in May 1998, included a celebration of the 50th anniversary of the system.) It did not take long for the General Agreement to give birth to an unofficial, de facto international organization, also known informally as GATT. Over the years GATT evolved through several rounds of negotiations. The last and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994 and led to the WTO’s creation. Whereas GATT had mainly dealt with trade in goods, the WTO and its agreements now cover trade in services, and in traded inventions, creations and designs (intellectual property). 2. Principles of the trading system The principles The trading system should be ... The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, • without discrimination — a country should not discriminate between its trad- telecommunications, government purchases, industrial standards and product safe- ing partners (giving them equally “most- ty, food sanitation regulations, intellectual property, and much more. But a number favoured-nation” or MFN status); and it of simple, fundamental principles run throughout all of these documents. These should not discriminate between its own principles are the foundation of the multilateral trading system. and foreign products, services or nationals (giving them “national treatment”); A closer look at these principles: • freer — barriers coming down through negotiation; Trade without discrimination • predictable — foreign companies, investors and governments should be confident 1. Most-favoured-nation (MFN): treating other people equally Under the WTO that trade barriers (including tariffs and agreements, countries cannot normally discriminate between their trading part- non-tariff barriers) should not be raised ners. Grant someone a special favour (such as a lower customs duty rate for one of arbitrarily; tariff rates and market-opening their products) and you have to do the same for all other WTO members. commitments are “bound”in the WTO; • more competitive — discouraging This principle is known as most-favoured-nation (MFN) treatment (see box). It is so “unfair” practices such as export subsidies important that it is the first article of the General Agreement on Tariffs and Trade and dumping products at below cost to (GATT), which governs trade in goods. MFN is also a priority in the General gain market share; • more beneficial for less developed coun- Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade- tries — giving them more time to adjust, Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each greater flexibility, and special privileges. agreement the principle is handled slightly differently. Together, those three agree- ments cover all three main areas of trade handled by the WTO.10
  12. 12. Some exceptions are allowed. For example, countries can set up a free trade agree- Why ‘most-favoured’?ment that applies only to goods traded within the group — discriminating againstgoods from outside. Or they can give developing countries special access to their This sounds like a contradiction. It sug- gests special treatment, but in the WTO itmarkets. Or a country can raise barriers against products that are considered to be actually means non-discrimination —traded unfairly from specific countries. And in services, countries are allowed, in treating virtually everyone equally.limited circumstances, to discriminate. But the agreements only permit these excep- This is what happens. Each member treatstions under strict conditions. In general, MFN means that every time a country low- all the other members equally as “most-ers a trade barrier or opens up a market, it has to do so for the same goods or ser- favoured” trading partners. If a country improves the benefits that it gives to onevices from all its trading partners — whether rich or poor, weak or strong. trading partner, it has to give the same2. National treatment: Treating foreigners and locals equally Imported and locally- “best” treatment to all the other WTO members so that they all remain “most-produced goods should be treated equally — at least after the foreign goods have favoured”.entered the market. The same should apply to foreign and domestic services, and toforeign and local trademarks, copyrights and patents. This principle of “national Most-favoured nation (MFN) status did not always mean equal treatment. Thetreatment” (giving others the same treatment as one’s own nationals) is also found first bilateral MFN treaties set up exclusivein all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and clubs among a country’s “most-favoured”Article 3 of TRIPS), although once again the principle is handled slightly different- trading partners. Under GATT and nowly in each of these. the WTO, the MFN club is no longer exclusive. The MFN principle ensures thatNational treatment only applies once a product, service or item of intellectual prop- each country treats its over-140 fellow-erty has entered the market. Therefore, charging customs duty on an import is not members equally.a violation of national treatment even if locally-produced products are not charged But there are some exceptions ...an equivalent tax.Freer trade: gradually, through negotiationLowering trade barriers is one of the most obvious means of encouraging trade. Thebarriers concerned include customs duties (or tariffs) and measures such as importbans or quotas that restrict quantities selectively. From time to time other issuessuch as red tape and exchange rate policies have also been discussed.Since GATT’s creation in 1947–48 there have been eight rounds of trade negotia-tions. A ninth round, under the Doha Development Agenda, is now underway. Atfirst these focused on lowering tariffs (customs duties) on imported goods. As aresult of the negotiations, by the mid-1990s industrial countries’ tariff rates onindustrial goods had fallen steadily to less than 4%But by the 1980s, the negotiations had expanded to cover non-tariff barriers ongoods, and to the new areas such as services and intellectual property.Opening markets can be beneficial, but it also requires adjustment. The WTO agree-ments allow countries to introduce changes gradually, through “progressive liberal-ization”. Developing countries are usually given longer to fulfil their obligations.Predictability: through binding and transparencySometimes, promising not to raise a trade barrier can be as important as loweringone, because the promise gives businesses a clearer view of their future opportuni-ties. With stability and predictability, investment is encouraged, jobs are created andconsumers can fully enjoy the benefits of competition — choice and lower prices.The multilateral trading system is an attempt by governments to make the businessenvironment stable and predictable. 11
  13. 13. In the WTO, when countries agree to open their markets for goods or services, they The Uruguay Round increased bindings “bind” their commitments. For goods, these bindings amount to ceilings on cus- toms tariff rates. Sometimes countries tax imports at rates that are lower than the Percentages of tariffs bound before and bound rates. Frequently this is the case in developing countries. In developed coun- after the 1986–94 talks tries the rates actually charged and the bound rates tend to be the same. Before After A country can change its bindings, but only after negotiating with its trading part- Developed countries 78 99 ners, which could mean compensating them for loss of trade. One of the achieve- Developing countries 21 73 ments of the Uruguay Round of multilateral trade talks was to increase the amount Transition economies 73 98 of trade under binding commitments (see table). In agriculture, 100% of products (These are tariff lines, so percentages are now have bound tariffs. The result of all this: a substantially higher degree of mar- not weighted according to trade volume ket security for traders and investors. or value) The system tries to improve predictability and stability in other ways as well. One way is to discourage the use of quotas and other measures used to set limits on quantities of imports — administering quotas can lead to more red-tape and accu- sations of unfair play. Another is to make countries’ trade rules as clear and public (“transparent”) as possible. Many WTO agreements require governments to dis- close their policies and practices publicly within the country or by notifying the WTO. The regular surveillance of national trade policies through the Trade Policy Review Mechanism provides a further means of encouraging transparency both domestically and at the multilateral level. Promoting fair competition The WTO is sometimes described as a “free trade” institution, but that is not entire- ly accurate. The system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, it is a system of rules dedicated to open, fair and undistorted competition. The rules on non-discrimination — MFN and national treatment — are designed to secure fair conditions of trade. So too are those on dumping (exporting at below cost to gain market share) and subsidies. The issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade. Many of the other WTO agreements aim to support fair competition: in agriculture, intellectual property, services, for example. The agreement on government procure- ment (a “plurilateral” agreement because it is signed by only a few WTO members) extends competition rules to purchases by thousands of government entities in many countries. And so on. Encouraging development and economic reform The WTO system contributes to development. On the other hand, developing coun- tries need flexibility in the time they take to implement the system’s agreements. And the agreements themselves inherit the earlier provisions of GATT that allow for spe- cial assistance and trade concessions for developing countries. Over three quarters of WTO members are developing countries and countries in transition to market economies. During the seven and a half years of the Uruguay Round, over 60 of these countries implemented trade liberalization programmes autonomously. At the same time, developing countries and transition economies were much more active and influential in the Uruguay Round negotiations than in any pre- vious round, and they are even more so in the current Doha Development Agenda.12
  14. 14. At the end of the Uruguay Round, developing countries were prepared to take on TRUE AND NON-TRIVIAL?most of the obligations that are required of developed countries. But the agreements Nobel laureate Paul Samuelson was oncedid give them transition periods to adjust to the more unfamiliar and, perhaps, dif- challenged by the mathematicianficult WTO provisions — particularly so for the poorest, “least-developed” countries. Stanislaw Ulam to “name me one propo-A ministerial decision adopted at the end of the round says better-off countries sition in all of the social sciences which is both true and non-trivial.”should accelerate implementing market access commitments on goods exported bythe least-developed countries, and it seeks increased technical assistance for them. Samuelson’s answer? Comparative advan-More recently, developed countries have started to allow duty-free and quota-free tage.imports for almost all products from least-developed countries. On all of this, the “That it is logically true need not beWTO and its members are still going through a learning process. The current Doha argued before a mathematician; that it isDevelopment Agenda includes developing countries’ concerns about the difficulties not trivial is attested by the thousands ofthey face in implementing the Uruguay Round agreements. important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was3. The case for open trade explained to them.”The economic case for an open trading system based on multilaterally agreed rules issimple enough and rests largely on commercial common sense. But it is also support-ed by evidence: the experience of world trade and economic growth since the SecondWorld War. Tariffs on industrial products have fallen steeply and now average less than5% in industrial countries. During the first 25 years after the war, world economicgrowth averaged about 5% per year, a high rate that was partly the result of lower tradebarriers. World trade grew even faster, averaging about 8% during the period.The data show a definite statistical link between freer trade and economic growth.Economic theory points to strong reasons for the link. All countries, including thepoorest, have assets — human, industrial, natural, financial — which they can employto produce goods and services for their domestic markets or to compete overseas.Economics tells us that we can benefit when these goods and services are traded. World trade and productionSimply put, the principle of “comparative advantage” says that countries prosper first have acceleratedby taking advantage of their assets in order to concentrate on what they can produce Both trade and GDP fell in the late 1920s,best, and then by trading these products for products that other countries produce best. before bottoming out in 1932. After World War II, both have risen exponentially, mostIn other words, liberal trade policies — policies that allow the unrestricted flow of of the time with trade outpacing GDP.goods and services — sharpen competition, motivate innovation and breed success. (1950 = 100. Trade and GDP: log scale)They multiply the rewards that result from producing the best products, with thebest design, at the best price. 2000But success in trade is not static. The ability to compete well in particular products Merchandise trade 1000can shift from company to company when the market changes or new technologiesmake cheaper and better products possible. Producers are encouraged to adaptgradually and in a relatively painless way. They can focus on new products, find a GDPnew “niche” in their current area or expand into new areas. 200Experience shows that competitiveness can also shift between whole countries. Acountry that may have enjoyed an advantage because of lower labour costs orbecause it had good supplies of some natural resources, could also become uncom- 100petitive in some goods or services as its economy develops. However, with the sti- GATT WTO created createdmulus of an open economy, the country can move on to become competitive in 50 1929/32 38 48 60 70 80 90 1995some other goods or services. This is normally a gradual process. 13
  15. 15. MORE ON THE WEBSITE: Nevertheless, the temptation to ward off the challenge of competitive imports is www.wto.org > resources > always present. And richer governments are more likely to yield to the siren call of WTO research and analysis protectionism, for short term political gain — through subsidies, complicated red tape, and hiding behind legitimate policy objectives such as environmental preser- vation or consumer protection as an excuse to protect producers. Protection ultimately leads to bloated, inefficient producers supplying consumers with outdated, unattractive products. In the end, factories close and jobs are lost despite the protection and subsidies. If other governments around the world pursue the same policies, markets contract and world economic activity is reduced. One of the objectives that governments bring to WTO negotiations is to prevent such a self- defeating and destructive drift into protectionism. Comparative advantage This is arguably the single most powerful superior at making bread, then A should insight into economics. still invest resources in what it does best — producing automobiles — and export Suppose country A is better than country the product to B. B should still invest in B at making automobiles, and country B is what it does best — making bread — and better than country A at making bread. It export that product to A, even if it is not is obvious (the academics would say “triv- as efficient as A. Both would still benefit ial”) that both would benefit if A special- from the trade. A country does not have ized in automobiles, B specialized in bread to be best at anything to gain from trade. and they traded their products. That is a That is comparative advantage. case of absolute advantage. The theory dates back to classical econo- But what if a country is bad at making mist David Ricardo. It is one of the most everything? Will trade drive all producers widely accepted among economists. It is out of business? The answer, according to also one of the most misunderstood Ricardo, is no. The reason is the principle among non-economists because it is con- of comparative advantage. fused with absolute advantage. It says, countries A and B still stand to It is often claimed, for example, that some benefit from trading with each other even countries have no comparative advantage if A is better than B at making everything. in anything. That is virtually impossible. If A is much more superior at making automobiles and only slightly Think about it ...14
  16. 16. 4. The GATT years: from Havana to MarrakeshThe WTO’s creation on 1 January 1995 marked the biggest reform of internationaltrade since after the Second World War. It also brought to reality — in an updated The trade chiefsform — the failed attempt in 1948 to create an International Trade Organization. The directors-general of GATT and WTOMuch of the history of those 47 years was written in Geneva. But it also traces a jour- • Sir Eric Wyndham White (UK) 1948–68ney that spanned the continents, from that hesitant start in 1948 in Havana (Cuba), • Olivier Long (Switzerland) 1968–80 • Arthur Dunkel (Switzerland) 1980–93via Annecy (France), Torquay (UK), Tokyo (Japan), Punta del Este (Uruguay), • Peter Sutherland (Ireland)Montreal (Canada), Brussels (Belgium) and finally to Marrakesh (Morocco) in 1994. GATT 1993–94; WTO 1995During that period, the trading system came under GATT, salvaged from the abort- • Renato Ruggiero (Italy) 1995–1999ed attempt to create the ITO. GATT helped establish a strong and prosperous mul- • Mike Moore (New Zealand) 1999–2002tilateral trading system that became more and more liberal through rounds of trade • Supachai Panitchpakdi (Thailand) 2002–2005negotiations. But by the 1980s the system needed a thorough overhaul. This led to • Pascal Lamy (France) 2005–the Uruguay Round, and ultimately to the WTO.GATT: ‘provisional’ for almost half a centuryFrom 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) providedthe rules for much of world trade and presided over periods that saw some of thehighest growth rates in international commerce. It seemed well-established, butthroughout those 47 years, it was a provisional agreement and organization.The original intention was to create a third institution to handle the trade side of inter-national economic cooperation, joining the two “Bretton Woods” institutions, theWorld Bank and the International Monetary Fund. Over 50 countries participated innegotiations to create an International Trade Organization (ITO) as a specializedagency of the United Nations. The draft ITO Charter was ambitious. It extendedbeyond world trade disciplines, to include rules on employment, commodity agree-ments, restrictive business practices, international investment, and services. The aimwas to create the ITO at a UN Conference on Trade and Employment in Havana, Cubain 1947.Meanwhile, 15 countries had begun talks in December 1945 to reduce and bind cus-toms tariffs. With the Second World War only recently ended, they wanted to give anearly boost to trade liberalization, and to begin to correct the legacy of protectionistmeasures which remained in place from the early 1930s.This first round of negotiations resulted in a package of trade rules and 45,000 tar-iff concessions affecting $10 billion of trade, about one fifth of the world’s total. Thegroup had expanded to 23 by the time the deal was signed on 30 October 1947. Thetariff concessions came into effect by 30 June 1948 through a “Protocol ofProvisional Application”. And so the new General Agreement on Tariffs and Tradewas born, with 23 founding members (officially “contracting parties”).The 23 were also part of the larger group negotiating the ITO Charter. One of theprovisions of GATT says that they should accept some of the trade rules of the draft.This, they believed, should be done swiftly and “provisionally” in order to protect thevalue of the tariff concessions they had negotiated. They spelt out how they envis-aged the relationship between GATT and the ITO Charter, but they also allowed forthe possibility that the ITO might not be created. They were right. 15
  17. 17. The Havana conference began on 21 November 1947, less than a month after GATT was signed. The ITO Charter was finally agreed in Havana in March 1948, but rati- fication in some national legislatures proved impossible. The most serious opposi- tion was in the US Congress, even though the US government had been one of the driving forces. In 1950, the United States government announced that it would not seek Congressional ratification of the Havana Charter, and the ITO was effectively dead. So, the GATT became the only multilateral instrument governing interna- tional trade from 1948 until the WTO was established in 1995. For almost half a century, the GATT’s basic legal principles remained much as they were in 1948. There were additions in the form of a section on development added in the 1960s and “plurilateral” agreements (i.e. with voluntary membership) in the 1970s, and efforts to reduce tariffs further continued. Much of this was achieved through a series of multilateral negotiations known as “trade rounds” — the biggest leaps forward in international trade liberalization have come through these rounds which were held under GATT’s auspices. In the early years, the GATT trade rounds concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping Agreement and a section on development. The Tokyo Round during the seventies was the first major attempt to tackle trade barriers that do not take the form of tar- iffs, and to improve the system. The eighth, the Uruguay Round of 1986–94, was the last and most extensive of all. It led to the WTO and a new set of agreements.The GATT trade rounds Year Place/ name Subjects covered Countries 1947 Geneva Tariffs 23 1949 Annecy Tariffs 13 1951 Torquay Tariffs 38 1956 Geneva Tariffs 26 1960–1961 Geneva (Dillon Round) Tariffs 26 1964–1967 Geneva (Kennedy Round) Tariffs and anti-dumping measures 62 1973–1979 Geneva (Tokyo Round) Tariffs, non-tariff measures, “framework” agreements 102 1986–1994 Geneva (Uruguay Round) Tariffs, non-tariff measures, rules, services, intellectual property, 123 dispute settlement, textiles, agriculture, creation of WTO, etc The Tokyo Round: a first try to reform the system The Tokyo Round ‘codes’ • Subsidies and countervailing measures The Tokyo Round lasted from 1973 to 1979, with 102 countries participating. It con- — interpreting Articles 6, 16 and 23 of GATT tinued GATT’s efforts to progressively reduce tariffs. The results included an average • Technical barriers to trade — sometimes one-third cut in customs duties in the world’s nine major industrial markets, bring- called the Standards Code ing the average tariff on industrial products down to 4.7%. The tariff reductions, • Import licensing procedures phased in over a period of eight years, involved an element of “harmonization” — the • Government procurement • Customs valuation — interpreting Article 7 higher the tariff, the larger the cut, proportionally. • Anti-dumping — interpreting Article 6, In other issues, the Tokyo Round had mixed results. It failed to come to grips with the replacing the Kennedy Round code • Bovine Meat Arrangement fundamental problems affecting farm trade and also stopped short of providing a • International Dairy Arrangement modified agreement on “safeguards” (emergency import measures). Nevertheless, a • Trade in Civil Aircraft series of agreements on non-tariff barriers did emerge from the negotiations, in some cases interpreting existing GATT rules, in others breaking entirely new ground. In most cases, only a relatively small number of (mainly industrialized) GATT members subscribed to these agreements and arrangements. Because they were not accepted by the full GATT membership, they were often informally called “codes”.16
  18. 18. They were not multilateral, but they were a beginning. Several codes were eventually Trade rounds: progress by packageamended in the Uruguay Round and turned into multilateral commitments acceptedby all WTO members. Only four remained “plurilateral” — those on government pro- They are often lengthy — the Uruguay Round took seven and a half years — butcurement, bovine meat, civil aircraft and dairy products. In 1997 WTO members trade rounds can have an advantage. Theyagreed to terminate the bovine meat and dairy agreements, leaving only two. offer a package approach to trade negoti- ations that can sometimes be more fruitful than negotiations on a single issue.Did GATT succeed? • The size of the package can mean more benefits because participants can seekGATT was provisional with a limited field of action, but its success over 47 years in and secure advantages across a widepromoting and securing the liberalization of much of world trade is incontestable. range of issues.Continual reductions in tariffs alone helped spur very high rates of world trade growth • Agreement can be easier to reach,during the 1950s and 1960s — around 8% a year on average. And the momentum of through trade-offs — somewhere in thetrade liberalization helped ensure that trade growth consistently out-paced production package there should be something forgrowth throughout the GATT era, a measure of countries’ increasing ability to trade everyone.with each other and to reap the benefits of trade. The rush of new members during This has political as well as economicthe Uruguay Round demonstrated that the multilateral trading system was recog- implications. A government may want tonized as an anchor for development and an instrument of economic and trade reform. make a concession, perhaps in one sector, because of the economic benefits. ButBut all was not well. As time passed new problems arose. The Tokyo Round in the politically, it could find the concession dif-1970s was an attempt to tackle some of these but its achievements were limited. ficult to defend. A package would containThis was a sign of difficult times to come. politically and economically attractive ben- efits in other sectors that could be used asGATT’s success in reducing tariffs to such a low level, combined with a series of compensation.economic recessions in the 1970s and early 1980s, drove governments to devise So, reform in politically-sensitive sectors ofother forms of protection for sectors facing increased foreign competition. High world trade can be more feasible as partrates of unemployment and constant factory closures led governments in Western of a global package — a good example isEurope and North America to seek bilateral market-sharing arrangements with the agreement to reform agriculturalcompetitors and to embark on a subsidies race to maintain their holds on agricul- trade in the Uruguay Round.tural trade. Both these changes undermined GATT’s credibility and effectiveness. • Developing countries and other less pow- erful participants have a greater chance ofThe problem was not just a deteriorating trade policy environment. By the early influencing the multilateral system in a trade1980s the General Agreement was clearly no longer as relevant to the realities of round than in bilateral relationships withworld trade as it had been in the 1940s. For a start, world trade had become far more major trading nations.complex and important than 40 years before: the globalization of the world econo- But the size of a trade round can be both amy was underway, trade in services — not covered by GATT rules — was of major strength and a weakness. From time tointerest to more and more countries, and international investment had expanded. time, the question is asked: wouldn’t it beThe expansion of services trade was also closely tied to further increases in world simpler to concentrate negotiations on a sin- gle sector? Recent history is inconclusive. Atmerchandise trade. In other respects, GATT had been found wanting. For instance, some stages, the Uruguay Round seemed soin agriculture, loopholes in the multilateral system were heavily exploited, and cumbersome that it seemed impossible thatefforts at liberalizing agricultural trade met with little success. In the textiles and all participants could agree on every subject.clothing sector, an exception to GATT’s normal disciplines was negotiated in the Then the round did end successfully in1960s and early 1970s, leading to the Multifibre Arrangement. Even GATT’s insti- 1993–94. This was followed by two years of failure to reach agreement in the single-tutional structure and its dispute settlement system were causing concern. sector talks on maritime transport.These and other factors convinced GATT members that a new effort to reinforce Did this mean that trade rounds were theand extend the multilateral system should be attempted. That effort resulted in the only route to success? No. In 1997, single-Uruguay Round, the Marrakesh Declaration, and the creation of the WTO. sector talks were concluded successfully in basic telecommunications, information tech- nology equipment and financial services. The debate continues. Whatever the answer, the reasons are not straightfor- ward. Perhaps success depends on using the right type of negotiation for the par- ticular time and context. 17
  19. 19. The 1986 agenda 5. The Uruguay Round The 15 original Uruguay Round subjects It took seven and a half years, almost twice the original schedule. By the end, 123 Tariffs countries were taking part. It covered almost all trade, from toothbrushes to plea- Non-tariff barriers sure boats, from banking to telecommunications, from the genes of wild rice to Natural resource products AIDS treatments. It was quite simply the largest trade negotiation ever, and most Textiles and clothing Agriculture probably the largest negotiation of any kind in history. Tropical products At times it seemed doomed to fail. But in the end, the Uruguay Round brought GATT articles Tokyo Round codes about the biggest reform of the world’s trading system since GATT was created at Anti-dumping the end of the Second World War. And yet, despite its troubled progress, the Subsidies Uruguay Round did see some early results. Within only two years, participants had Intellectual property agreed on a package of cuts in import duties on tropical products — which are Investment measures mainly exported by developing countries. They had also revised the rules for settling Dispute settlement The GATT system disputes, with some measures implemented on the spot. And they called for regu- Services lar reports on GATT members’ trade policies, a move considered important for mak- ing trade regimes transparent around the world. A round to end all rounds? The Uruguay Round — Key dates The seeds of the Uruguay Round were sown in November 1982 at a ministerial Sep 86 Punta del Este: launch meeting of GATT members in Geneva. Although the ministers intended to launch Dec 88 Montreal: ministerial mid-term review a major new negotiation, the conference stalled on agriculture and was widely Apr 89 Geneva: mid-term review completed regarded as a failure. In fact, the work programme that the ministers agreed formed Dec 90 Brussels: “closing” ministerial the basis for what was to become the Uruguay Round negotiating agenda. meeting ends in deadlock Dec 91 Geneva: first draft of Nevertheless, it took four more years of exploring, clarifying issues and painstaking Final Act completed consensus-building, before ministers agreed to launch the new round. They did so Nov 92 Washington: US and EU achieve in September 1986, in Punta del Este, Uruguay. They eventually accepted a negoti- “Blair House” breakthrough on agriculture ating agenda that covered virtually every outstanding trade policy issue. The talks Jul 93 Tokyo: Quad achieve market were going to extend the trading system into several new areas, notably trade in access breakthrough at G7 summit services and intellectual property, and to reform trade in the sensitive sectors of agri- Dec 93 Geneva: most negotiations end (some market access talks remain) culture and textiles. All the original GATT articles were up for review. It was the Apr 94 Marrakesh: agreements signed biggest negotiating mandate on trade ever agreed, and the ministers gave them- Jan 95 Geneva: WTO created, agreements selves four years to complete it. take effect Two years later, in December 1988, ministers met again in Montreal, Canada, for what was supposed to be an assessment of progress at the round’s half-way point. The purpose was to clarify the agenda for the remaining two years, but the talks ended in a deadlock that was not resolved until officials met more quietly in Geneva the following April. Despite the difficulty, during the Montreal meeting, ministers did agree a package of early results. These included some concessions on market access for tropical products — aimed at assisting developing countries — as well as a streamlined dis- pute settlement system, and the Trade Policy Review Mechanism which provided for the first comprehensive, systematic and regular reviews of national trade policies and practices of GATT members. The round was supposed to end when ministers met once more in Brussels, in December 1990. But they disagreed on how to reform agricultural trade and decided to extend the talks. The Uruguay Round entered its bleakest period.18
  20. 20. Despite the poor political outlook, a considerable amount of technical work contin-ued, leading to the first draft of a final legal agreement. This draft “Final Act” wascompiled by the then GATT director-general, Arthur Dunkel, who chaired the nego-tiations at officials’ level. It was put on the table in Geneva in December 1991. Thetext fulfilled every part of the Punta del Este mandate, with one exception — it didnot contain the participating countries’ lists of commitments for cutting importduties and opening their services markets. The draft became the basis for the finalagreement.Over the following two years, the negotiations lurched between impending failure,to predictions of imminent success. Several deadlines came and went. New pointsof major conflict emerged to join agriculture: services, market access, anti-dumpingrules, and the proposed creation of a new institution. Differences between theUnited States and European Union became central to hopes for a final, successfulconclusion.In November 1992, the US and EU settled most of their differences on agriculturein a deal known informally as the “Blair House accord”. By July 1993 the “Quad”(US, EU, Japan and Canada) announced significant progress in negotiations on tar-iffs and related subjects (“market access”). It took until 15 December 1993 for everyissue to be finally resolved and for negotiations on market access for goods and ser-vices to be concluded (although some final touches were completed in talks on mar-ket access a few weeks later). On 15 April 1994, the deal was signed by ministersfrom most of the 123 participating governments at a meeting in Marrakesh,Morocco.The delay had some merits. It allowed some negotiations to progress further thanwould have been possible in 1990: for example some aspects of services and intel-lectual property, and the creation of the WTO itself. But the task had been immense,and negotiation-fatigue was felt in trade bureaucracies around the world. The diffi-culty of reaching agreement on a complete package containing almost the entirerange of current trade issues led some to conclude that a negotiation on this scalewould never again be possible. Yet, the Uruguay Round agreements contain time-tables for new negotiations on a number of topics. And by 1996, some countrieswere openly calling for a new round early in the next century. The response wasmixed; but the Marrakesh agreement did already include commitments to reopennegotiations on agriculture and services at the turn of the century. These began inearly 2000 and were incorporated into the Doha Development Agenda in late 2001.What happened to GATT?The WTO replaced GATT as an international organization, but the GeneralAgreement still exists as the WTO’s umbrella treaty for trade in goods, updated asa result of the Uruguay Round negotiations. Trade lawyers distinguish betweenGATT 1994, the updated parts of GATT, and GATT 1947, the original agreementwhich is still the heart of GATT 1994. Confusing? For most of us, it’s enough torefer simply to “GATT”. 19
  21. 21. The post-Uruguay Round built-in agenda Many of the Uruguay Round agreements set timetables for future work. Part of this “built-in agenda” started almost immediately. In some areas, it included new or fur- ther negotiations. In other areas, it included assessments or reviews of the situation at specified times. Some negotiations were quickly completed, notably in basic telecommunications, financial services. (Member governments also swiftly agreed a deal for freer trade in information technology products, an issue outside the “built- in agenda”.) The agenda originally built into the Uruguay Round agreements has seen additions and modifications. A number of items are now part of the Doha Agenda, some of them updated. There were well over 30 items in the original built-in agenda. This is a selection of highlights: 1996 • Maritime services: market access negotiations to end (30 June 1996, suspended to 2000, now part of Doha Development Agenda) • Services and environment: deadline for working party report (ministerial conference, December 1996) • Government procurement of services: negotiations start 1997 • Basic telecoms: negotiations end (15 February) • Financial services: negotiations end (30 December) • Intellectual property, creating a multilateral system of notification and registration of geographical indications for wines: negotiations start, now part of Doha Development Agenda20
  22. 22. 1998• Textiles and clothing: new phase begins 1 January• Services (emergency safeguards): results of negotiations on emergency safeguards to take effect (by 1 January 1998, deadline now March 2004)• Rules of origin: Work programme on harmonization of rules of origin to be completed (20 July 1998)• Government procurement: further negotiations start, for improving rules and procedures (by end of 1998)• Dispute settlement: full review of rules and procedures (to start by end of 1998)1999• Intellectual property: certain exceptions to patentability and protection of plant varieties: review starts2000• Agriculture: negotiations start, now part of Doha Development Agenda• Services: new round of negotiations start, now part of Doha Development Agenda• Tariff bindings: review of definition of “principle supplier” having negotiating rights under GATT Art 28 on modifying bindings• Intellectual property: first of two-yearly reviews of the implementation of the agreement2002• Textiles and clothing: new phase begins 1 January2005• Textiles and clothing: full integration into GATT and agreement expires 1 January 21
  23. 23. Chapter 2 THE AGREEMENTSThe WTO is ‘rules-based’;its rules are negotiated agreements1. Overview: a navigational guideThe WTO agreements cover goods, services and intellectual property. They spell outthe principles of liberalization, and the permitted exceptions. They include indivi- The ‘additional details’dual countries’ commitments to lower customs tariffs and other trade barriers, and These agreements and annexes deal withto open and keep open services markets. They set procedures for settling disputes. the following specific sectors or issues:They prescribe special treatment for developing countries. They require govern- For goods (under GATT)ments to make their trade policies transparent by notifying the WTO about laws in • Agricultureforce and measures adopted, and through regular reports by the secretariat on coun- • Health regulations for farm products (SPS) • Textiles and clothingtries’ trade policies. • Product standards (TBT)These agreements are often called the WTO’s trade rules, and the WTO is often • Investment measures • Anti-dumping measuresdescribed as “rules-based”, a system based on rules. But it’s important to remember • Customs valuation methodsthat the rules are actually agreements that governments negotiated. • Preshipment inspection • Rules of originThis chapter focuses on the Uruguay Round agreements, which are the basis of the • Import licensingpresent WTO system. Additional work is also now underway in the WTO. This is • Subsidies and counter-measuresthe result of decisions taken at Ministerial Conferences, in particular the meeting in • SafeguardsDoha, November 2001, when new negotiations and other work were launched. For services (the GATS annexes)(More on the Doha Agenda, later.) • Movement of natural persons • Air transportSix-part broad outline • Financial services • ShippingThe table of contents of “The Results of the Uruguay Round of Multilateral Trade • TelecommunicationsNegotiations: The Legal Texts” is a daunting list of about 60 agreements, annexes, deci-sions and understandings. In fact, the agreements fall into a simple structure with sixmain parts: an umbrella agreement (the Agreement Establishing the WTO); agreementsfor each of the three broad areas of trade that the WTO covers (goods, services and intel-lectual property); dispute settlement; and reviews of governments’ trade policies.The agreements for the two largest areas — goods and services — share a commonthree-part outline, even though the detail is sometimes quite different. • They start with broad principles: the General Agreement on Tariffs and trade (GATT) (for goods), and the General Agreement on Trade in Services (GATT) (The third area, Trade-Related Aspects of Intellectual Property Rights (TRIPS), also falls into this category although at present it has no additional parts.) • Then come extra agreements and annexes dealing with the special require- ments of specific sectors or issues. • Finally, there are the detailed and lengthy schedules (or lists) of commitments made by individual countries allowing specific foreign products or service- providers access to their markets. For GATT, these take the form of binding commitments on tariffs for goods in general, and combinations of tariffs and quotas for some agricultural goods. For GATS, the commitments state how much access foreign service providers are allowed for specific sectors, and they include lists of types of services where individual countries say they are not applying the “most-favoured-nation” principle of non-discrimination. 23
  24. 24. Underpinning these are dispute settlement, which is based on the agreements and commitments, and trade policy reviews, an exercise in transparency. Much of the Uruguay Round dealt with the first two parts: general principles and principles for specific sectors. At the same time, market access negotiations were possible for industrial goods. Once the principles had been worked out, negotiations could proceed on the commitments for sectors such as agriculture and services. Additional agreements Another group of agreements not included in the diagram is also important: the two “plurilateral” agreements not signed by all members: civil aircraft and government procurement. Further changes on the horizon, the Doha Agenda These agreements are not static; they are renegotiated from time to time and new agreements can be added to the package. Many are now being negotiated under the Doha Development Agenda, launched by WTO trade ministers in Doha, Qatar, in November 2001. In a nutshell The basic structure of the WTO agreements: how the six main areas fit together — the umbrella WTO Agreement, goods, services, intellectual property, disputes and trade policy reviews. Umbrella AGREEMENT ESTABLISHING WTO Goods Services Intellectual property Basic principles GATT GATS TRIPS Additional details Other goods Services annexes agreements and annexes Market access Countries’ Countries’ schedules commitments schedules of of commitments commitments (and MFN exemptions) Dispute settlement DISPUTE SETTLEMENT Transparency TRADE POLICY REVIEWS24
  25. 25. 2. Tariffs: more bindings and closer to zero Binding’ tariffs The market access schedules are not simplyThe bulkiest results of Uruguay Round are the 22,500 pages listing individual coun- announcements of tariff rates.Theytries’ commitments on specific categories of goods and services. These include com- represent commitments not to increasemitments to cut and “bind” their customs duty rates on imports of goods. In some tariffs above the listed rates — the ratescases, tariffs are being cut to zero. There is also a significant increase in the number of are “bound”. For developed countries,“bound” tariffs — duty rates that are committed in the WTO and are difficult to raise. the bound rates are generally the rates actually charged. Most developing countries have bound the rates somewhat higher ON THE WEBSITE: than the actual rates charged, so the bound www.wto.org > trade topics > goods > goods schedules rates serve as ceilings. www.wto.org > trade topics > services > services schedules Countries can break a commitment (i.e. raise a tariff above the bound rate), but only with difficulty. To do so they haveTariff cuts to negotiate with the countries most con- cerned and that could result in compensa- tion for trading partners’ loss of trade.Developed countries’ tariff cuts were for the most part phased in over five yearsfrom 1 January 1995. The result is a 40% cut in their tariffs on industrial products,from an average of 6.3% to 3.8%. The value of imported industrial products thatreceive duty-free treatment in developed countries will jump from 20% to 44%.There will also be fewer products charged high duty rates. The proportion ofimports into developed countries from all sources facing tariffs rates of more than15% will decline from 7% to 5%. The proportion of developing country exports fac-ing tariffs above 15% in industrial countries will fall from 9% to 5%.The Uruguay Round package has been improved. On 26 March 1997, 40 countriesaccounting for more than 92% of world trade in information technology products,agreed to eliminate import duties and other charges on these products by 2000 (by 2005in a handful of cases). As with other tariff commitments, each participating country isapplying its commitments equally to exports from all WTO members (i.e. on a most-favoured-nation basis), even from members that did not make commitments. What is this agreement called? There is no legally binding agreement that sets out the targets for tariff reductions (e.g. by what percentage they were to be cut as a result of the Uruguay Round).Instead, individual countries listed their commitments in schedules annexed to Marrakesh Protocolto the General Agreement on Tariffs and Trade 1994. This is the legally binding agreement for thereduced tariff rates. Since then, additional commitments were made under the 1997 InformationTechnology Agreement.More bindingsDeveloped countries increased the number of imports whose tariff rates are“bound” (committed and difficult to increase) from 78% of product lines to 99%. Fordeveloping countries, the increase was considerable: from 21% to 73%. Economiesin transition from central planning increased their bindings from 73% to 98%. Thisall means a substantially higher degree of market security for traders and investors. ON THE WEBSITE: www.wto.org > trade topics > market access> See also Doha Agenda negotiations 25
  26. 26. And agriculture ... Tariffs on all agricultural products are now bound. Almost all import restrictions that did not take the form of tariffs, such as quotas, have been converted to tariffs — a process known as “tariffication”. This has made markets substantially more predictable for agriculture. Previously more than 30% of agricultural produce had faced quotas or import restrictions. The first step in “tariffication” was to replace these restrictions with tariffs that represented about the same level of protection. Then, over six years from 1995–2000, these tariffs were gradually reduced (the reduction period for developing countries ends in 2005). The market access com- mitments on agriculture also eliminate previous import bans on certain products. In addition, the lists include countries’ commitments to reduce domestic support and export subsidies for agricultural products. (See section on agriculture.) > See also Doha Agenda chapter 3. Agriculture: fairer markets for farmers The original GATT did apply to agricultural trade, but it contained loopholes. For exam- What is ‘distortion’? ple, it allowed countries to use some non-tariff measures such as import quotas, and This a key issue. Trade is distorted if prices to subsidize. Agricultural trade became highly distorted, especially with the use of are higher or lower than normal, and export subsidies which would not normally have been allowed for industrial products. if quantities produced, bought, and sold The Uruguay Round produced the first multilateral agreement dedicated to the sector. are also higher or lower than norma It was a significant first step towards order, fair competition and a less distorted sector. — i.e. than the levels that would usually exist in a competitive market. It was implemented over a six-year period (and is still being implemented by develop- ing countries under their 10-year period), that began in 1995. The Uruguay Round For example, import barriers and domestic agreement included a commitment to continue the reform through new negotiations. subsidies can make crops more expensive on a country’s internal market. The higher These were launched in 2000, as required by the Agriculture Agreement. prices can encourage over-production. > See also Doha Agenda negotiations If the surplus is to be sold on world mar- kets, where prices are lower, then export subsidies are needed. As a result, the subsidizing countries can be producing and exporting considerably more than they normally would. Governments usually give three reasons for supporting and protecting their farmers, even if this distorts agricultural trade: • to make sure that enough food is produced to meet the country’s needs • to shield farmers from the effects of the weather and swings in world prices • to preserve rural society. But the policies have often been expensive, and they have created gluts leading to export subsidy wars. Countries with less money for subsidies have suffered. The debate in the negotiations is whether these objectives can be met without distorting trade.26
  27. 27. The Agriculture Agreement: new rules and commitmentsThe objective of the is to reform trade in the sector and tomake policies more market-oriented. This would improve predictability and secu-rity for importing and exporting countries alike. The new rules and commitments apply to: • market access — various trade restrictions confronting imports • domestic support — subsidies and other programmes, including those that raise or guarantee farmgate prices and farmers’ incomes • export subsidies and other methods used to make exports artificially competitive.The agreement does allow governments to support their rural economies, but prefer-ably through policies that cause less distortion to trade. It also allows some flexibility inthe way commitments are implemented. Developing countries do not have to cut theirsubsidies or lower their tariffs as much as developed countries, and they are given extratime to complete their obligations. Least-developed countries don’t have to do this at all.Special provisions deal with the interests of countries that rely on imports for their foodsupplies, and the concerns of least-developed economies.“Peace” provisions within the agreement aim to reduce the likelihood of disputes orchallenges on agricultural subsidies over a period of nine years, until the end of 2003. What is this agreement called? Most provisions: Agreement on Agriculture. Commitments on tariffs, tariff quotas, domestic supports, export subsidies: in schedules annexed to the Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994.Also: [Ministerial] Decision on Measures Concerning the Possible Negative Effects of the ReformProgramme on Least-Developed and Net Food-Importing Developing Countries.(See also: “Modalities for the establishment of specific binding commitments under the reformprogramme”, MTN.GNG/MA/W/24.)Market access: ‘tariffs only’, pleaseThe new rule for market access in agricultural products is “tariffs only”. Before theUruguay Round, some agricultural imports were restricted by quotas and other non-tariff measures. These have been replaced by tariffs that provide more-or-less equiv-alent levels of protection — if the previous policy meant domestic prices were 75%higher than world prices, then the new tariff could be around 75%. (Converting thequotas and other types of measures to tariffs in this way was called “tariffication”.)The tariffication package contained more. It ensured that quantities importedbefore the agreement took effect could continue to be imported, and it guaranteedthat some new quantities were charged duty rates that were not prohibitive. Thiswas achieved by a system of “tariff-quotas” — lower tariff rates for specified quanti-ties, higher (sometimes much higher) rates for quantities that exceed the quota.The newly committed tariffs and tariff quotas, covering all agricultural products,took effect in 1995. Uruguay Round participants agreed that developed countrieswould cut the tariffs (the higher out-of-quota rates in the case of tariff-quotas) by anaverage of 36%, in equal steps over six years. Developing countries would make 24%cuts over 10 years. Several developing countries also used the option of offering ceil-ing tariff rates in cases where duties were not “bound” (i.e. committed under GATTor WTO regulations) before the Uruguay Round. Least-developed countries do nothave to cut their tariffs. (These figures do not actually appear in the Agriculture 27